HR Pulse

Pension and salary numbers are artificially up

BankservAfrica tracks salary and pension payments made via the payments system in South Africa, which provides great insight into total as well as average payments into individuals’ bank accounts. It is important to note that April 2016 was an unusual payment month in that civil servants received two increases in the same financial year.

This happened because of a three-month delay in their annual salary increase last year – something which has skewed the numbers this year.This has had a substantial impact on salary increases as the data makes it appear as though they effectively received two increases in a single year, due to the late payment last year. This has had a significant influence on the numbers this month, as have the higher pension income increases.

Salary increase above inflation but this may not last.
Average take-home pay increased by 7.4% on a year ago according to the BankservAfrica Disposable Salary Index (BDSI). The average disposable salary was R12 877 in April 2016 compared to R11 985 in April 2015. The actual increase in average take-home pay was R892 over the last year.

While this is 1.1% higher than inflation, it is an artificially high number as last year’s government negotiation with its employees caused a three-month payment delay. BankservAfrica anticipate that this will also result in a temporary higher rate of increase in May and June based on the fact that government paid last year’s increase late.

The end result is that just over a quarter of people receiving salaries through the payment system measured by BankservAfrica are in effect seeing two increases at present. It also means that the current percentage increase in take-home pay is influenced by much lower increases between April and June 2015.

The South African Reserve Bank expects inflation to average 6.7% this year. Generally take-home salaries are not expected to keep up with inflation this year as negotiated increases typically use past inflation as a starting point. Last year the inflation rate in South Africa averaged 4.6%, meaning most salary increases this year will be based on that figure, plus possibly an extra 1 to 1.5%.

Additionally, the Minister of Finance only allowed for a 3.4% adjustment for inflation when he announced the new tax brackets. This means that most people will in effect pay about 2% more in taxes in real terms. The current inflation shock is also influencing the payments to medical insurance schemes which are also often deducted before an employee’s take-home pay lands in the bank.

Taking all the above factors into account, BankservAfrica expects that salaries will continue to increase in nominal terms, but at a rate that is below or near inflation this year, so in real terms will start to decline.

Pension increases are significant, but from a low level
Banked pensions continue to increase at a faster rate than disposable salaries - pensions increased by 8% on a year ago. While the JSE did not fare that well, this increase might be explained by retirement funds investing money off-shore and the weak Rand helping to increase pension payments.

Over the last year average pension payments have gone from being under 44% of average salaries in July 2015 (due to big government salary back pay-out during that month) to just less than 48% now. While pensioners are still paid at less than half the level of salaried people, their increases have nevertheless been astounding over the last few years.

Between the weaker Rand, higher interest rates and a stagnant JSE, the average pay-out has gone from around R4 750 at the end of 2013 to just over R6 200 in March 2016. This is an increase in the average pension of about R1 500 per month – slightly more than the old age grant amounts paid by government.

Total amount paid increases sharply
Total value of payments to both pensioners and employees combined shot up by 8.7% when compared to a year ago. The total salary payments went up by 7.4% with no major change in the number of salaries paid. However, both the number of pensioners and the average pension increased, resulting in total amount of pensions paid increasing by 12.6%.

The 8.7% increase is 2.4% higher than the inflation rate and may just help keep retail sales and other consumer consumption expenditure higher than initially thought.

Are there more people going on early retirement or being retrenched?
Interestingly, when one looks at the total payments to people for pensions and salaries (inclusive of those payments of over R100 000 per month), the total increase is 12% which is well above the 8.7% increase for the total payments for those under R100 000.

This is due to the huge increase in the total number of pension payments (inclusive of those payments over R100 000) which is 17.1% higher. Pension payments of over R100 000 is up 26.7%. The number of payments in the over R100 000 category is up nearly 21%, which is perhaps an indication of people getting a lump sum pay-out at retirement.

Very few pensioners or salaried people would receive payments of over R100 000 per month after tax, pension and medical insurance are deducted. Although inflation will help to increase the number, generally it is a very small category and unlikely to be a monthly payment for pensions. (It would mean that the gross pension or salary would be over R150 000 per month, which is extremely unlikely.)

Moreover, after witnessing a decline for a period of roughly a year, for the last 14 months the number of the total pension payments has been steadily increasing, indicating a growth in the number of people who are retiring.

This increase in the number of pensioners may also be a factor in the increase of the average pension payment, as new pensioners would typically have more money saved due to salary increases and not having eroded their savings as much as older people in the pension system.

Interestingly the first four months of 2016 witnessed a slowing in the growth of the number of people receiving pensions of over R100 000 per month to 9.4% from 11.1% in the four months leading to December 2015.

This increase is still far higher than expected as population growth in that age group is only around 3.2%. It does look like the slow economy may be forcing a higher rate of early retirement, and therefore increasing the number of pensioners.

Source:Bankserve Africa